Derek Chollet:

The government has a critical role to play, but the private sector has an indispensable role to play in trying to ensure that the right investments are getting made to the right companies to ensure that we're innovating for our defense future.

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Mark Marengo:

Aerospace and defense specifically is a key foundation to our national security. So when you think of what the SRI initiative is designed to do, it's really about resolving our most critical national security issues. And aerospace and defense is one of the five key pillars that we've outlined.

Derek Chollet:

The way this has been designed, it's a recognition that J.P. Morgan has a unique role to play. Given our experience, given our history, given our clients across all of these sectors, we have a critical role to play and we're going to play it, right? Whether it's making this just a priority, whether it's putting $10 billion off our own balance sheet into the mix to invest, this is something we're going to do. But it's not just J.P. Morgan alone. It's something we're going to have to do in cooperation with U.S. and other governments as we expand this out, but then also with partners throughout the private sector, first and foremost our clients, but other partners in this space. Because it's a big challenge, a big set of problems that didn't happen overnight. We're not going to get out of it overnight, but we do have a critical role to play.

Mark Marengo:

So the government will spend roughly a trillion dollars...

Derek Chollet:

Could be 1.5 trillion.

Mark Marengo:

...on defense. So as you think about the capabilities where we see a lot of the investment dollars going, I think it's critical areas like AI and cyber. It's areas like drones. It's subsea capabilities, recognizing that that's going to be a very important capability. So whether that's submarines, whether that's unmanned subsea, whether that's subsea sensors, that is a very active area where we're seeing a lot of investment dollars going. And then I think, look, there's a lot of interesting next generation capabilities that in as long as I've been covering this sector, for over 20 years, there is more venture capital-backed next generation technology companies emerging than I've seen at any other point in time in history. And so I think there's a lot of focus on bringing those next-gen capabilities, making sure they get funded and bringing those capabilities to the warfighting domain.

Derek Chollet:

Technological innovation and military readiness are inextricably linked. They always have been. And this is a great example of an area where the synergies between the various components of SRI are absolutely essential because the work that, Mark, you're doing on the defense and aerospace side has got to be hand in glove with our colleagues working the frontier tech piece of SRI, also, by the way, with our colleagues working critical minerals and rare earths, because all of this is combined into military readiness. And so the investments in those domains will absolutely feed into our ability in defense and aerospace, and also building those synergies between companies in the frontier tech space that don't think of themselves necessarily as defense companies or aerospace companies, but will be creating technologies, innovating technologies that will change the way we think about defense and aerospace.

Mark Marengo:

Our goals with SRI are very much mutually aligned with the goals of the administration, which is to solve the most critical problems facing our national security. And so, through our active dialogue with them, we're able to deploy our capital and our resources to those areas that are most prescient to that.

Derek Chollet:

And what's been interesting for me to watch is how, first, the government, which obviously in this space, the defense and aerospace, has always understood and had a very close partnership with the private sector, I would say that's only really intensified and diversified in the last year and a half. And the government doing things that are not unprecedented in U.S. history, but certainly rare in recent history in terms of taking equity stakes in particular companies and really working so closely with the private sector in trying to bring about the kinds of investment that they judge are necessary for U.S. national security. But then the second thing that's been really interesting to watch, and something that SRI is critically part of in the defense and aerospace world, is working with partners. SRI is principally about the United States, but it's also about making partners stronger. And as partners are thinking about their national security needs and the resilience of their supply chains and the defense and aerospace reforms that they are undertaking, they are looking for the support of a global bank, a leading global bank like J.P. Morgan, for help. And we're learning a lot of lessons by our efforts to talk to companies about their investments and ways to help them in working with the U.S. government that we can apply to our partners around the world. Because we're seeing it's not just the U.S. defense budget that's going up to north of a trillion dollars. We're seeing a massive spike in European defense budgets. And that's something that's been a long time coming. And it's here, and it's going to change over time the defense and aerospace landscape inside Europe as well. And so, that's something that we think is important. We're excited about participating in, and so far, the conversations we've had with European clients as well as European governments has been quite positive, and they're very receptive and in fact eager to have our work and help with them in that effort.

Mark Marengo:

There's a lot more investment going into defense in Europe, right? We've taken a number of companies public recently that have been very, very successful deals, books that are massively oversubscribed. So there's a lot of capital flowing into defense as a sector, not only in the United States, but also in Europe.

Derek Chollet:

This is not going to change overnight, but I think we can already start to see, I think, in some of the work that we've been part of, in kind of that bending the curve in the right way where the most critical technologies, the critical industries, the critical innovations for the United States in terms of our own security writ large, that 5, 10, 15 years from now, we're going to be in a position where we're more resilient, where we're also going to be economically successful, right? And we're investing in systems of the future in a way that's going to make us all safer. And that's ultimately the larger mission here. And J.P. Morgan alone is not going to solve the problem, but we can use our unique capabilities and unique experience, and unique and diverse network to try to do our part to solve that problem. And I think we're already off to a good start, although there's a lot of work left to do.

Mark Marengo:

Well, a lot of work left to do, and I think you hit on one of the most important parts is that we're not going to solve this alone, right? We need partners, we need allies abroad, we need the government working in partnership with us, we need other banks, other financial institutions, other sources of capital that all can come together and ultimately work towards solving the long-term problems that we've all talked about.

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